Global spending on SaaS (software as a service) will rise 17.9 percent this year to US$14.5 billion, according to figures released Tuesday by analyst firm Gartner.
SaaS market growth will remain strong through 2015, when spending on the software is expected to hit $22.1 billion, according to Gartner.
The spending rise is attributable to greater familiarity with how SaaS works, growth in related PaaS (platform as a service) offerings, and IT budgeting considerations, Gartner research director Sharon Mertz said in a statement. SaaS products are typically sold via subscription, allowing companies to avoid large up-front licensing fees and capital costs.
North America is the most mature and largest SaaS market, expected to generate $9.1 billion in revenue this year, compared to $7.8 billion last year.
Western Europe's SaaS spending will generate more than $3.2 billion in 2012, up from $2.7 billion in 2011.
In the Asia-Pacific region, for which Gartner excludes Japan, SaaS revenue will jump from $730.9 million in 2011 to $934.1 million this year.
Japanese companies will spent $495.2 million on SaaS this year, compared to $427 million last year, Gartner said.
SaaS sales in Japan will be driven by CRM (customer relationship management) and collaboration software, "which already have actual demand," Gartner said. The 2011 earthquake has also raised interest in SaaS there as a possible defense against such natural disasters, according to the analyst firm.
SaaS spending in Latin America this year will be $419.7 million, compared to $331.1 million in 2011, Brazilian and Mexican companies will account for the majority of sales, with CRM, procurement and ERP (enterprise resource planning) applications the most popular choices, Gartner said.
Meanwhile, Eastern Europe, the Middle East and Africa remain "small and emerging markets overall" with "ongoing infrastructure challenges," Gartner said.
Overall, the market growth predicted by Gartner can be attributed to both pure SaaS vendors such as Salesforce.com, which is predicting it will reach close to $3 billion in annual revenue during its fiscal 2013, as well as increased emphasis on SaaS by dominant on-premises application vendors like Oracle and SAP.
Those companies recently spent billions to respectively acquire Taleo and SuccessFactors, which compete in the HCM (human capital management) market.
HCM is seen as an effective way for on-premises vendors to make inroads in the SaaS market. For one, many offerings focus on areas such as recruitment and learning and development. Those functions are adjacent to core human-resources functions like payroll, which are already handled at many companies by on-premises ERP systems.
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com
This story, "Gartner: Software As a Service Market to Grow 17.9 Percent to $14.5 Billion" was originally published by IDG News Service Boston Bureau.